Because in cryptocurrencies we are able to tell exactly how much money has been issued and how much has been transacted in a given period, we are also able to determine the velocity of money. The velocity of money is the average frequency with which a unit of money is spent in a specific period of time.

In this chart we can see that the velocity of money (green line) increases in inflationary booms and decreases in deflationary recessions (gray bars), which is logical; when there is inflation people want to spend their money and when there's deflation they want to save it. We can take advantage of this to figure out how much money we should be issuing. If one year the velocity is 100 and the next year it's 102 we can assume that the currency has devalued so we cut the reward to get rid of the excess liquidity. If the next year it goes down to 98 we assume that the currency has appreciated because the demand for it exceeded the supply, so we pump up the block reward to bring the velocity back to 0%.

Of course, people could just send themselves money every block to fake the velocity and create hyperinflation. The solution for that is to use ( # of coins sent)*(# of confirmations on sent coins at the time that they are sent) in the equation instead of plain sent amount. This makes it a waste of time to send yourself money every block instead of waiting to make a legitimate transaction. Also, since the block reward depends on transaction volume and there can't be a transaction volume if there are no coins to spend, we would need an initial period of guaranteed reward to kickstart the economy before the transaction-based reward takes over. Let's say 2 years worth of blocks with 50 coins every block.

I have big doubts about this one. So I can influence the inflation rate by moving coins between wallets? Even if it's tempered by confirmations, we'd essentially be selling votes on how to manipulate the money supply. Fortunately, the incentive to manipulate gets weaker and weaker as the wealth spreads out.

works till a large mining pool starts creating meaningless transactions in order to boost the payout. remember, miners are essentially the central bank in our system. they benefit from inflation. We saw how the time stamp flaw in the alt chains was gamed. I too thought the curve on bitcoin generation being arbitrary wasn't the right way. but i just don't see an un-gameable alternative.

( # of coins sent)*(# of confirmations on sent coins at the time that they are sent)

The long term aggregate average of that quantity (coin days destroyed) is constant. If you have a total of 10 coins being spent every day, at the end of the month you have a total of 300cdd, or an average of 10cdd/day. If you spend them 3 times per month it's still 10cdd/day.

So you might have a dynamic indicator that tells how to modulate the daily expansion, but you still haven't solved the basic problem, how should that long term monetary expansion look like: asymptotically decreasing, constant, exponential etc.

Also, the issue of control by the financial cabal remains: if I hold a large quantity of "stale" coins I can control your parameter thus inject liquidity in the market when I decide to do so.

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You can prevent manipulation by making transaction fees mandatory.

Thus driving the people away from transactions in the blockchain to private systems, thus disrupting the mechanism, giving the owners of those systems large quantities of stale coins to play with, and the unique opportunity to reinvent fractional reserve.

I have big doubts about this one. So I can influence the inflation rate by moving coins between wallets? Even if it's tempered by confirmations, we'd essentially be selling votes on how to manipulate the money supply. Fortunately, the incentive to manipulate gets weaker and weaker as the wealth spreads out.

Moving coins between wallets would influence inflation rate very briefly but becomes irrelevant in the long term. Moving 10 coins with 50 confirmations to a new address and then using the 10 coins with 40 confirmations to purchase something would have the same effect of leaving the coins in the original address and then buying the thing when the coins have 90 confirmations.

works till a large mining pool starts creating meaningless transactions in order to boost the payout. remember, miners are essentially the central bank in our system. they benefit from inflation. We saw how the time stamp flaw in the alt chains was gamed. I too thought the curve on bitcoin generation being arbitrary wasn't the right way. but i just don't see an un-gameable alternative.

The solution for that is to use ( # of coins sent)*(# of confirmations on sent coins at the time that they are sent) in the equation instead of plain sent amount. This makes it a waste of time to send yourself money every block instead of waiting to make a legitimate transaction.

So you might have a dynamic indicator that tells how to modulate the daily expansion, but you still haven't solved the basic problem, how should that long term monetary expansion look like: asymptotically decreasing, constant, exponential etc.

There's no fixed long term expansion curve, that's the whole premise. It's supposed to adapt to the economy on the go.

Also, the issue of control by the financial cabal remains: if I hold a large quantity of "stale" coins I can control your parameter thus inject liquidity in the market when I decide to do so.

I guess but it would be a one time only, once the coins are spent that power is gone. One way to mitigate this attack would be to use longer timespans when calculating the velocity rate changes (i.e. looking at year over year changes instead of month over month) so that the higher number of transactions included "drown" the volume of this attack. Not a perfect solution though as this would make the system react more slowly to sudden changes in the economy. Also, since a sharp increase in velocity would sharply decrease the block reward, it is within the realm of possibility that miners refuse to include that transaction in any block.

So you might have a dynamic indicator that tells how to modulate the daily expansion, but you still haven't solved the basic problem, how should that long term monetary expansion look like: asymptotically decreasing, constant, exponential etc.

There's no fixed long term expansion curve, that's the whole premise. It's supposed to adapt to the economy on the go.

I haven't made myself sufficiently clear. Eventually all coins are spent (or almost all), so a temporary drop in the CDD value corresponds to an increase later on, in a constant sum game. Let CDD=(# of coins sent)*(# of confirmations on sent coins at the time that they are sent) in a week. Let's say we have a simple inversely proportional algorithm for the block bonus in a given week:CDD = 1000 -> Block bonus = 50CDD = 1100 -> Block bonus = 45CDD = 900 -> Block bonus = 55

So a high velocity corresponds to a reduced block bonus to stem inflation, and vice-versa. Well then, in this situation although the block bonus depends on the CDD value in a given week, the total long term monetary expansion is roughly the same as if the block reward is constant 50 because of the tendency of the CDD value to even itself out on the long run. So while it might achieve some degree of price stability, the long time value is still governed by the average reward of 50/block.

On the other hand, an exponential system like this:CDD = 1000 -> block bonus = 0.0001% of the outstanding monetary baseCDD = 1100 -> block bonus = 0.00009% of the outstanding monetary baseetc. will lead to an entirely different long term shape of the monetary base (exponential) although both systems modulate their block reward based on CDD.

You are telling me you have gas pedal with which to control the car's speed; I'm asking you where you want to go.

I've found an error in our initial assumption, the idea that holders of wealth could create hyperinflation by manipulating speed. In fact when the velocity is high that's a sign of inflation, so the system should react by cutting the block reward. This create a dangerous pro-cyclical situation: the holders of wealth have a vested interest to minimize the block reward, thus they will simulate a high velocity even during deflation.